The Securities and Exchange Commission considers climate disclosure rule

The Securities and Exchange Commission said for the first time that public companies should tell their shareholders and the federal government how they are affecting the climate, a sweeping proposal long demanded by environmental advocates.

The country’s top financial regulator gave initial approval to a long-awaited climate disclosure rule at Monday’s meeting, moving ahead with a measure that would advance the faltering Biden administration’s environmental agenda.

The proposed rule – approved by a 3 to 1 vote – aims to give investors a clearer picture of the risks that climate change may pose to businesses, due to disasters such as drought and wildfires, changes in government environmental policies or waning consumer interest. In products that contribute to global warming.

But the consequences could be far-reaching: Environmental advocates and corporate governance have said the transparency the rule requires will hold companies accountable for their role in climate change, and give investors more leverage in forcing changes to business practices that contribute to global warming.

said Bill Weil, the former green energy czar at Google and director of sustainability at Facebook who now leads Climate Voice, a group that encourages employees to push for climate action.

The public will have up to 60 days to comment on the plan, which, if passed, would establish a reporting framework for companies to provide information about climate-related risks in their annual reports and stock registry data.

But the proposal has already drawn opposition from some business groups and could be challenged in court, potentially delaying its effective date. Much of the criticism has focused on the extent to which emissions-related data fall within the SEC’s purview.

A cornerstone of the SEC’s rules requires disclosure of “material” information to investors, which means they need it to make an informed decision about buying or selling shares.

Rep. Patrick T. McHenry of North Carolina, the ranking Republican on the House Financial Services Committee, called the proposal “deaf and misleading” and said climate risk is not a core issue for most companies.

“The Biden administration is pushing its climate agenda through financial regulators because they don’t have the votes to get it through Congress,” he said.

But many companies have already begun to publish information about greenhouse gas emissions. The Securities and Exchange Commission estimates that a third of the 7,000 annual companies it reviewed in 2019 and 2020 included some climate impact disclosures. Senator Jack Reed, Democrat of Rhode Island, said the proposed law would restore order to the operation.

“Publicly traded companies can no longer pick at climate reports, and investors will have a much better sense of their exposure to physical climate risk,” he said.

The organizers said the base is built on it Directives from the Supreme Education Council issued in 2010 for companies about disclosing information on climate change. The Securities and Exchange Commission took this action at the same time that the Environmental Protection Agency began requiring some large companies to collect data on greenhouse gas emissions.

“Over generations, the SEC has stepped in when there is a significant need to disclose information relevant to investor decisions,” SEC Chairman Gary Gensler said in a statement. He said more investors are paying for such information.

“Investors with $130 trillion in assets under management have demanded companies disclose their climate risks,” said Mr. Gensler.

The US Chamber of Commerce, a trade lobby group, said it broadly supports the goal of climate disclosure by companies but wants a more “clear and workable” rule that does not force companies to disclose non-material risks.

“We will defend provisions of this proposal that depart from this standard or are unnecessarily broad,” said Tom Quadman, executive vice president of the Chamber’s Competitiveness Center for Capital Markets.

In a discussion with investors after the committee vote, Gensler said the Securities and Exchange Commission will seriously consider comments from companies, investors and the legal community before it enacts a disclosure rule. “We look forward to public comments,” he said.

Some companies – including Apple, Facebook, Google and Microsoft – are already reporting extensive data and have set deadlines by which they hope to decarbonize overall. But the proposed rule, which has more than 500 pages, would create a framework for all publicly traded companies.

Companies will be required to perform three levels of analysis of their impact on the climate – a consistent analysis The way scientists view the environmental impact of business activity.

At the first two levels, companies are required to annually disclose the direct impact of their operations on climate change in terms of the products they manufacture and any indirect environmental impacts that come with the use of electricity, trucks or other vehicles.

The third level is more comprehensive and includes assessing the carbon footprint of suppliers, business travel, and any assets the company leases. The SEC proposal would only require the largest companies to report this level of climate impact – known as Scope 3 emissions – but would allow individual companies to decide whether the information would be material to investors.

Disclosure of Scope 3 emissions, which mainly include gases generated by corporate suppliers or more incidental processes, often dwarf the other two types. This requirement will not apply to large companies for at least two years in most cases.

Large companies that report Scope 3 emissions will initially receive a so-called safe haven from litigation by investors who believe the companies’ analysis was flawed. The Securities and Exchange Commission (SEC) chose to provide the safe harbor because Scope 3 emissions can be more complex to analyze and collect.

Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress, said he still had some questions about how the rule would address scope 3 emissions, but added that the proposed rule would give investors “access to the critical information they need to make informed investment decisions.”

When the commission He said last year As he weighed whether to propose climate rules, the public was invited to submit letters of comment. A survey of letters by Ceres, a nonprofit group that works with investors and companies to address environmental challenges, found that 65 percent of comments submitted by investment firms called for companies to include scope 3 emissions.

Some corporate executives are likely to welcome the proposed rule because they believe standard climate disclosures will make it easier to compare companies’ environmental efforts.

Microsoft, for example, wrote a letter in support of the Commission’s climate push. Big tech companies have positioned themselves as pioneers in moving away from fossil fuels, but they are also facing headwinds: Microsoft, which aims to be “carbon negative” by 2030, I recently reported a rise in emissions. The increase was almost entirely driven by increased Scope 3 emissions, as the company built new data centers and Xbox usage rose in the pandemic.

Environmental advocates hope that rules that require companies to measure and report greenhouse gas emissions will encourage companies to take tougher steps to reduce their impact on the climate.

“There is an old adage in business: What gets measured gets managed,” said Mr. Reed, a senator from Rhode Island.

The Sierra Club and the Environmental Defense Fund both praised the proposed rule and said it should be adopted quickly. Ben Cushing, who leads the Sierra Club’s efforts for stronger climate disclosures, said the rule was “long overdue.”

“Companies have pledged to address their climate impact without disclosing the full scope of their emissions, the risks their companies face from climate change or related business plans to fulfill their climate pledges,” he said.

If the rule becomes final, it would be a notable victory for the Biden administration, which has struggled to implement its broader climate agenda. The limited progress it has made with legislation focused on emissions has left financial regulation as one of the main tools that must change corporate behavior as climate change worsens.

Last week, Sarah Bloom Raskin, one of the Biden administration’s nominees for service to the Federal Reserve, withdrew from the study due to opposition from business groups and Republicans to some of her writing that argued that financial regulators need to focus more on how companies affect climate. . She stepped aside after Senator Joe Manchin III, Democrat of West Virginia, said he would not vote to confirm it.

Christopher Flavel Contribute to the preparation of reports.